A Compromise, but No Solution

Yahoo executives and outspoken activist investor Carl Icahn may have reached a http://www.eweek.com/c/a/Search/Yahoo-and-Icahn-Settle-Microsoft-Deal-Adrift/compromise that will help them avoid what promised to be an ugly and protracted proxy battle for control of Yahoo's Board of Directors, but don't think that's going to keep Icahn from pushing forward his agenda, which has included ousting CEO Jerry Yang and having Yahoo sell all or parts of its business.

As part of the compromise, Yahoo has agreed to appoint Icahn and two of his nominees to the board. In exchange, Icahn will withdraw his entire slate of board nominees, stepping away from engaging in the proxy battle. It's a compromise both sides had to make. Yahoo, despite its (so far) successful bid in thwarting Microsoft takeover plans and its advertising deal with Google, is still trying to figure out its future. And as Erick Schonfield noted in his http://www.techcrunch.com/blog on TechCrunch, Icahn had found his positioning weakening over the past few months.

"This outcome is probably the best that Icahn could have hoped for. Icahn overplayed his hand by trying to negotiate directly with Microsoft before he had enough authority to do so (he owns five percent of Yahoo's shares). The result was a three-way negotiation between Icahn, Microsoft, and Yahoo that resembled a game of Telephone, with mixed messages flying everywhere.

Microsoft ended up distancing itself from Icahn, and other large institutional shareholders such as Legg Mason's Bill Miller decided that ganging up with Icahn would be a bad idea. And Yahoo began soliciting votes for its current board members on its homepage."

A portion of the board is better than none for Icahn, Schonfield reasoned.

Others also had been calling for a compromise. Investor Eric Jackson, who founded the Ironfire Capital hedge fund, had put forward what he called his Yahoo Plan B, which called for a mixed group of Yahoo and Icahn supporters being elected to the board at the Yahoo annual meeting Aug. 1. Jackson said his Yahoo Plan B group included 150 members who owned a total of 3.2 million shares of Yahoo worth more than $70 million.

But while the compromise means no messy proxy battle at the Aug. 1 meeting, no one should expect that Icahn will back away from his views on Yahoo. In a statement, Icahn reiterated those beliefs.

"While I continue to believe that the sale of the whole company or the sale of its search business in the right transaction must be given full consideration, I share the view that Yahoo's valuable collection of assets positions it well to continue expanding its online leadership and enhancing returns to stockholders," he said. "I believe this is a good outcome and that we will have a strong working relationship going forward."

In addition, CEO Yang has long been the target of much of Icahn's criticism, to the point where Icahn has called for his removal as chief executive. How that relationship plays out will go a long way in deciding how this new compromise works. Writing before the compromise was announced, Kara Swisher of All Things Digital said that while it appeared Yang had successfully blocked a takeover attempt by Icahn, it was unclear which Yang would lead Yahoo after the shareholder meeting.

"Would that be the seemingly energetic Yang of the past two weeks, invigorated by the battle with Icahn and his new best friend and Yahoo foe, Microsoft (MSFT)?

Or will it be the other Yang?

Because, for months and months now, since Microsoft waged its takeover bid on the Internet company he founded, the woe-is-me vibe emanating from Yang has been working the last nerve of anyone paying attention to the proceedings."

How Icahn and Yang play together now that they're both in the same sandbox will go a long way in determining whether this compromise is a long-term, workable solution or just a stepping stone on Icahn's path to gaining control of the company.